Terms of trade refer to the ratio at which a country can trade its goods and services for goods and services from other countries. It is calculated as the ratio of export prices to import prices. A favorable terms of trade means that a country can export more goods and services for the same amount of imports, leading to higher economic growth and a stronger currency. Conversely, an unfavorable terms of trade means that a country must export more goods and services to afford the same amount of imports, leading to lower economic growth and a weaker currency. Terms of trade are influenced by factors such as supply and demand for goods and services, exchange rates, and trade policies.
